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Measuring Social Security’s Financial Problems

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  • Jagadeesh Gokhale

    (The Wharton School, University of Pennsylvania and NBER)

  • Kent Smetters

    (The Wharton School, University of Pennsylvania)

Abstract

The U.S. Social Security system has helped keep many retirees out of poverty. However, according to the Social Security and Medicare Trustees, Social Security faces a future financial shortfall of $10.4 trillion in present value. This enormous imbalance has received little attention in public debates about Social Security. Instead, the media and policymakers continue to focus on the program’s trust fund and several other ad-hoc measures that create a misleading impression of the size of Social Security’s financial problem. Although the Social Security Trust Fund is not projected to be exhausted until 2042, Social Security’s $10.4 trillion present value imbalance is accruing interest and will grow by $600 billion during 2004 alone. The current cash-flow federal budget, however, is biased against reforms that would improve Social Security’s finances. As shown herein, a new federal accounting system would remove this bias.

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Bibliographic Info

Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp093.

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Length: 26 pages
Date of creation: Jan 2005
Date of revision:
Handle: RePEc:mrr:papers:wp093

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  1. Peter Diamond, 2004. "Social Security," American Economic Review, American Economic Association, vol. 94(1), pages 1-24, March.
  2. Jagadeesh Gokhale & Kent Smetters, 2003. "Fiscal and generational imbalances: new budget measures for new budget priorities," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Dec.
  3. Sita Nataraj & John B. Shoven, 2004. "Has the Unified Budget Undermined the Federal Government Trust Funds?," NBER Working Papers 10953, National Bureau of Economic Research, Inc.
  4. Kent Smetters, 2004. "Is the Social Security Trust Fund a Store of Value?," American Economic Review, American Economic Association, vol. 94(2), pages 176-181, May.
  5. Gary V. Engelhardt & Jonathan Gruber, 2004. "Social Security and the Evolution of Elderly Poverty," NBER Working Papers 10466, National Bureau of Economic Research, Inc.
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Cited by:
  1. Andrew G. Biggs & Jeffrey R. Brown & Glenn Springstead, 2005. "Alternative Methods of Price Indexing Social Security: Implications for Benefits and System Financing," NBER Working Papers 11406, National Bureau of Economic Research, Inc.
  2. Nippani, Srinivas & Smith, Stanley D., 2010. "The increasing default risk of US Treasury securities due to the financial crisis," Journal of Banking & Finance, Elsevier, vol. 34(10), pages 2472-2480, October.
  3. William R. Emmons & Anthony Pennington-Cross, 2006. "Editor's introduction," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 221-234.
  4. Francisco J. Gomes & Laurence J. Kotlikoff & Luis M. Viceira, 2012. "The Excess Burden of Government Indecision," NBER Chapters, in: Tax Policy and the Economy, Volume 26, pages 125-163 National Bureau of Economic Research, Inc.
  5. Gourio, François, 2011. "Putty-clay technology and stock market volatility," Journal of Monetary Economics, Elsevier, vol. 58(2), pages 117-131, March.
  6. Jianjun Miao & Neng Wang, 2007. "Risk, Uncertainty, and Option Exercise," Boston University - Department of Economics - Working Papers Series WP2007-016, Boston University - Department of Economics.
  7. Laurence J. Kotlikoff, 2007. "Is the U.S. Bankrupt?," Boston University - Department of Economics - Working Papers Series WP2007-015, Boston University - Department of Economics.
  8. Anjan Thakor, 2006. "Commentary on "Is the United States bankrupt? "," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 251-258.
  9. Erling Holmøy, 2007. "Fiscal sustainability: Must the problem be diminished before we can see it?," Discussion Papers 499, Research Department of Statistics Norway.
  10. Mar Devesa Carpio & José E. Devesa Carpio, 2009. "El coste y el desequilibrio financiero-actuarial de los sistemas de reparto. El caso del sistema Español," Working Papers. Serie EC 2009-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  11. Laurence Kotlikoff & Ben Marx & Pietro Rizza, 2006. "Americans' Dependency on Social Security," Working Papers wp126, University of Michigan, Michigan Retirement Research Center.
  12. Laurence J. Kotlikoff, 2006. "Is the United States bankrupt?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 235-250.

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